Liontrust US Income Fund

Q3 2019 review

During the third quarter of 2019, the Liontrust US Income Fund returned 3.5% versus the S&P 500 Index return of 5.0% and the IA North America sector average return of 3.5%.


Market overview


US equities managed to finish in modestly positive territory during the 3rd quarter of 2019 despite increased recessionary concerns sparked by an inverting yield curve, continued global manufacturing slowdown and the ongoing US/China trade war. In the face of these concerns, further rate cuts from the Fed, general monetary easing from overseas central banks and evidence that the all-important US consumer remains in good health helped support equities. This dovish move and softer global economic data caused a further slide in 10-year government bond yields, which fell by around 0.4% to 1.67% at the quarter end. Positive developments during the quarter included signs of the housing market strengthening which had stalled in the face of higher mortgage rates. 30 year fixed mortgage rates are back below 3.8% having reached 4.8% at the end of 2018.


Sector wise, the market had a distinctive defensive feel to it, with utilities, REITs and staples leading, helped by deteriorating equity market sentiment and lower bond yields. Healthcare and energy continued to be on the naughty step. Healthcare struggled as the Democrat presidential candidate, Elizabeth Warren, rose in the polls and the energy sector was correlated to a falling oil price.  


There has been much talk this year about the widening value/growth dispersion with growth outperforming significantly this year. The bottoming of bond yield and subsequent steepening of the curve caused a sharp rotation away from growth. Some of this was to be expected given the valuation differential and bond yields are the likely determinant of the relative trade going forwards. We continue to believe that much of this dispersion stems for digital disruption which is driving a wide stake between the haves and have nots. The disrupters and their embracers are growing at the expense of the disrupted. This view would caution against those calling for value as a style in itself to make a sustained comeback in the near future.


The seemingly rapidly changing global economic outlook and heightened level of geopolitical uncertainty continues, in our view, to support our strategy of not being aggressively overweight or underweight individual sectors. Instead we look to deliver outperformance by finding companies within sectors that are well placed from our disruption theme angle and sustainably grow dividends ahead of the market. Often we feel the market underappreciates dividend paying companies like these.


Portfolio attribution


We were slightly ahead of the wider US peer group more representatively and also our US Income peers and US dividend indices during the quarter.


Stock specifics were the main driver of a weaker quarter but overriding themes for stocks that held back performance include those companies exposed to the global industrial cycle, China and energy end market exposure. Individual stocks that underperformed included Medifast, the weight loss company, that has continued to de-rate despite posting solid earnings growth. We believe it has been tarnished by concerned over direct selling business models in China despite having no exposure there. Stronger performers were generally to be found in the more defensive sectors benefiting from the market’s flight to relative safety and included Lamb Weston, the French fry producer, which has also continued to deliver strong results but whose shares had suffered earlier in the year over concerns that industry supply growth would diminished their pricing power.


The Fund’s turnover was extremely low during the quarter and we remain focused on finding dividend stocks with latency potential and where we believe the outlook for dividend growth has room to improve in the medium term.


Discrete years' performance* (%), to previous quarter-end:








Liontrust US Income C Acc






S&P 500 Index






IA North America












*Source: Morningstar as at 30.09.2019, on 17.10.2019.


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Key Risks

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. Investment in funds managed by the Global Equity (GE) team may involve investment in smaller companies - these stocks may be less liquid and the price swings greater than those in, for example, larger companies. Investment in funds managed by the GE team may involve foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The team may invest in emerging markets/soft currencies or in financial derivative instruments, both of which may have the effect of increasing volatility. Some of the funds managed by the GE team hold a concentrated portfolio of stocks, meaning that if the price of one of these stocks should move significantly, this may have a notable effect on the value of that portfolio.


The information and opinions provided should not be construed as advice for investment in any product or security mentioned, an offer to buy or sell units/shares of Funds mentioned, or a solicitation to purchase securities in any company or investment product. Always research your own investments and (if you are not a professional or a financial adviser) consult suitability with a regulated financial adviser before investing.

Wednesday, October 23, 2019, 9:57 AM